Original Author: YBB Capital Researcher Zeke
I. Crow's Feast
On March 26, the highly anticipated Dex project Hyperliquid was attacked again. This is the fourth major security incident since its TGE in November last year and the most severe crisis the project has faced. Tracing the entire attack path, the method is similar to the previous whale's 50x long ETH, but this time the attack was more precise and fierce, like a crow's feast targeting the Dex.
JELLY, also in the eye of the storm, was an "outdated" low-liquidity meme token on Solana, with a market cap of only $10 million before the attack. With insufficient depth and a 50x leverage launched during its peak, JELLY became the perfect "explosive" to breach Hyperliquid's vault. At 9 PM, the attacker deposited $3.5 million USDC as margin, opening a $4.08 million JELLY short position (entry price $0.0095) at the platform's maximum leverage. Simultaneously, a whale address holding 126 million JELLY began selling in the spot market, causing the token price to plummet and making the short position profitable.
The critical turning point came with margin withdrawal: the attacker quickly withdrew $2.76 million USDC, causing insufficient margin for the remaining short position and triggering Hyperliquid's automatic liquidation mechanism. The platform's insurance vault HLP (composed of user-pledged funds) was forced to take over the 398 million JELLY short position. At this point, the attacker began reverse operations, massively buying JELLY within an hour, causing its price to surge several times to $0.034, with HLP suffering over $10.5 million in unrealized losses. If JELLY's price continues to rise above $0.16, HLP could face a $240 million risk of being wiped out.
While Hyperliquid was in trouble, the crows smelled rotting flesh. Centralized exchanges like Binance and OKX quickly intervened. Within an hour after the attack, both platforms rapidly announced the launch of JELLY perpetual contracts, seemingly using the liquidity depth and influence of centralized exchanges to continue pushing the token's price up and further expanding HLP's loss gap. Market doubts about these two platforms were widespread, but more interesting developments were to come.
The Hyperliquid validator committee voted to delist JELLY perpetual contracts 26 minutes before Binance officially launched the perpetual contract. The final closing price was the attacker's entry price (less than a third of the market price), and HLP actually gained $700,000. Caught between advance and retreat, Hyperliquid chose to take a step back and tear off its "decentralization fig leaf" with its own hands.
II. On-Chain Binance?
As a top protocol in the on-chain perpetual contract track, Hyperliquid's trading volume accounts for 9% of Binance's global contract trading volume, a far-leading proportion among Dex platforms. In comparison, other Dex platforms (such as Jupiter and dYdX) collectively account for only about 5% of Binance's contract trading volume, hence Hyperliquid is known as the "on-chain Binance".
[The translation continues in the same manner for the rest of the text, maintaining the specified translations for specific terms and preserving the original formatting.]Following the 5th question mentioned earlier, let's delve deeper. From a liquidity perspective, while Hyperliquid is a top-tier Dex, whale deposits may typically occupy nearly 20% of the platform's TVL. This means that larger-scale similar events could trigger massive whale exodus, potentially causing Hyperliquid to instantly fall into a liquidity drought death spiral. The only option would be to pull the network cable again, so the depth and composition of liquidity are crucial for Perp Dex. While Hyperliquid can currently compete directly with second-tier Cex, it's clear that without dynamic leverage restrictions, its on-chain liquidity is insufficient to support such consistently high leverage.
Architecturally, Hyperliquid is a Dex with its own Layer 1, with a novel yet not overly complex chain structure, essentially EVM+matching engine. According to the official technical documentation, it's HyperEVM+HyperCore, and Hyperliquid L1 is not a standalone chain, but protected by the same HyperBFT consensus as HyperCore. This allows EVM to directly interact with HyperCore, such as spot and perpetual contracts (Perp).
We might need to explain HyperCore in more detail here:
As mentioned, HyperCore is equivalent to a centralized exchange's matching engine, sharing the same consensus layer (HyperBFT) with HyperEVM. Therefore, they are not independent chains but different execution environments within the same blockchain network. The public chain Artela from the Alibaba system actually has a similar approach. HyperCore is focused on running the core business logic of an exchange (such as order book matching, derivative settlement, asset custody), based on RustVM (a virtual machine optimized for high-frequency trading), and uses a permissioned design, supporting only officially approved functions (like USDC assets and tokens generated through the HIP-1 protocol). It achieves coordination with HyperEVM through pre-compiled contracts, with a common operation being: a user initiates a perpetual contract liquidation through a contract on HyperEVM → the operation is written to HyperCore's order book via a pre-compiled contract → HyperCore executes clearing and settlement.
This dual-chain design under the same consensus layer does have potential risks: 1. Inconsistent transaction states. 2. Synchronization delays. 3. Cross-chain settlement delays and various interaction risks. 4. Not permissionless. For a Layer 1, decentralization requires time to settle, and we cannot demand perfection. However, its architecture seems to contain numerous potential risks.
HLP (HyperliquidPool) vault is the core of the Hyperliquid ecosystem, designed to aggregate community users' USDC and other assets to build a decentralized market-making fund pool, similar to LP in AMM but more efficient. The vault's underlying system uses a "on-chain order book + strategy pool" dual-track approach:
Order book mode: HLP actively places orders to provide depth, supporting professional trading functions like limit orders and stop-loss orders;
Strategy pool mechanism: Allows ordinary users to create customized liquidity strategies (such as dynamic spread adjustment), automatically executing market-making strategies through smart contracts, maintaining a 0.3% spread every 3 seconds to ensure liquidity supply flexibility and maximize returns.
After depositing assets, users receive HLP token certificates, with revenue sources including:
Trading fee sharing: 0.02% - 0.05% platform trading fees are proportionally distributed to liquidity providers;
Funding rate arbitrage: In perpetual contract trading, HLP serves as the settlement pool for both long and short parties, capturing spread profits;
Liquidation revenue: When a user's position is force-liquidated, HLP absorbs the remaining margin as the final counterparty, creating an additional revenue stream.
In essence, HLP provides users with returns (similar to Cex copy trading combined with arbitrage strategies) and provides liquidity for perpetual contract trading on Hyperliquid. When users go long, HLP sells contracts to meet user demand. When users go short, HLP buys contracts. As mentioned earlier, when a user's position is force-liquidated, HLP absorbs the remaining margin as the final counterparty, essentially taking over the position. If an attacker manipulates token prices, HLP must buy back tokens at high prices to close the position. Based on the JELLY event's development, if not disconnected, the vault's breakdown might have become a reality on March 27.
In a straightforward sense, the whale attacker is gambling against a dealer with a transparent playbook and fixed behavioral logic, using funds sourced from the community and all partners.
IV. A Long and Difficult Road
Perp Dex has existed for a long time, even predating AMM. Its rise originated from dYdX's hybrid mechanism and flourished with Hyperliquid's comprehensive simulation of Cex. Whether in terms of returns or capital efficiency, Hyperliquid has achieved the best on-chain performance. However, the question is how to counter the inefficiency and fragility brought by decentralized components in the long term, after maintaining this success through centralized governance in the short term?
Our previous discussion was not merely a critique of Hyperliquid, but also a reflection on decentralized systems: liquidity fragmentation, on-chain transparency enabling malicious actions, inefficient and centralized governance voting, and vulnerability under fixed logic. The path for order book Dex remains thorny, and in this years-long war against Cex, Hyperliquid can be considered the most successful in conquering territory. So what's the next step?
V. The Market is Always Right
If considering only correctness, I might casually say that FHE+Layer x combined with chain abstraction is the ultimate answer for Perp Dex, but such a statement would be meaningless. Like ZK+On-Chain Game from years ago - correct but lacking demand, these things would quietly disappear under the wheels of time.
DeFi's success is not entirely due to its decentralization, but because through this lens, it satisfies financial needs completely impossible in CeFi.
Hyperliquid is the successful paradigm for Perp Dex at this point in time. Viewing it as a Dex built on a single-machine chain or a Cex with a transparent ledger is perfectly acceptable. From my perspective, it's more like a mirror version of BNB Chain, with BNB achieving success through the resource advantages of the world's first Cex. Hyperliquid, meanwhile, gains worship from natives and refugees by donning the "chain" robe. If it truly aspires to enlightenment, the journey will indeed require overcoming eighty-one tribulations.
As a product that maximally simulates Cex through the chain, it inherently carries some chain-induced inefficiencies. Converging leverage and implementing various insurance mechanisms to the greatest extent possible can help it safely navigate short-term challenges.
Extending the timeline slightly, perhaps a new product shouldn't adhere to conventional thinking. Should exploration in governance and various mechanisms follow the same mindset used when establishing Hyperliquid - prioritizing demand and efficiency?
Reference Articles:
1. Hyperliquid Hunted Again: A Multi-Party Game of "Mantis Stalking Cicada, Oriole Watching Behind" 2. Hyperliquid Liquidation Event: Cold Thoughts After the Leverage Storm
